Detroit 3 must learn from mistakes on Japan trade, for a change
Al Warner is director of the Automotive Strategies LLC consulting firm in Arlington, Va.
Al Warner directed the Motor Vehicle Division at the U.S. Commerce Department for more than 30 years and served on the auto task forces of Presidents Carter and Reagan. He is now director of the Automotive Strategies LLC consulting firm in Arlington, Va.
Chrysler Group, General Motors, Ford Motor Co. and their Washington lobbying arm -- The American Automotive Policy Council -- are fighting Japan's efforts to join the Trans-Pacific Partnership negotiations. This is the wrong approach. The Detroit 3 understand from experience that trade liberalization and harmonization will help them compete globally, but their approach to Japan and the TPP indicates that they have not learned from their mistakes or their successes.
The Detroit 3's 10-year demand for a stronger Japanese yen is a good example of being careful about what one wishes for. Clearly a yen trading at 75 to the dollar, the highest in recent memory, cannot support the Japanese automotive manufacturing system, with its large export component. Consequently, Japanese auto companies are building more plants outside Japan, many of them in North America.
About two-thirds of Japanese vehicles sold in the United States are already made in North America. Production of much of the remaining third (some 1.4 million vehicles) can easily be moved here. Lower U.S. manufacturing costs will mean that Japanese-nameplate vehicles can compete better against those made by the Detroit 3. The strong yen the Detroit 3 demanded could actually cost them U.S. sales.
Another successful but arguably misguided Detroit 3 trade policy is preserving the 25 percent truck duty. The duty kept imported trucks out, so Japanese automakers established truck production in the United States. The Japanese do not compete throughout the pickup truck market, and the Detroit 3 produce a quality product. This combination is a strong advantage for Detroit. However, even the limited Japanese product line has resulted in a product cycle for Detroit 3 pickups falling from a highly profitable seven to eight years to a much less profitable four years.
The combination of a strong yen and the 25 percent duty will pressure Japanese manufacturers to make their pickups even more competitive, while the Detroit 3 may find they have lost the advantage they still have in this segment.
The Obama administration is sympathetic to the Detroit 3 and wants to help them. In fact, the president hardly acknowledges the billions in Japanese investments in U.S. facilities and thousands of supplier jobs. The U.S. automakers' low market share in Japan, compared with Japanese nameplate U.S. sales, grates on the administration.
But the Detroit 3/American Automotive Policy Council is squandering this valuable support by opposing Japan's joining the Trans-Pacific Partnership unless the administration "opens" Japan's auto market. They are alone among U.S. industries in this opposition, and their unspecified demands boil down to unacceptable managed trade terms.
In truth, there are no Japanese government "barriers" preventing the Detroit 3 from competing in Japan for the administration to attack. There are structural (costly and scarce land, established dealer relationships) and cultural (brand loyalty, different sales methods) issues. But, as in every market, long-term focus, investment and consumer-oriented products can be successful. The Japanese like high-quality foreign goods. The Detroit 3 have been unable to penetrate the Japanese market because they lacked competitive products and a long-term sales strategy. This can change. The products, capital and favorable exchange rate are all there.
GM, Ford and Chrysler must acknowledge that Detroit no longer dominates the U.S. auto industry, and that cooperation with the rest of the U.S. industry and the government is far more productive than confrontation. Recent regulatory policy successes have demonstrated that when the total U.S. industry mobilizes, it creates a formidable, effective coalition.
The TPP matters because it will be the cornerstone for U.S. economic and geopolitical policy in the Asia-Pacific region, increase U.S. trade and interaction with key Asian countries, and act as a positive counterweight to China's efforts to achieve economic and strategic dominance in the region. For the Detroit 3 it means exporting from the U.S. will be freer. The Asian subsidiaries of the Detroit 3 will see improved trading efficiencies which will enable them to increase volume and efficiency.
Given that the U.S. has no real barriers to auto imports -- aside from the truck duty -- it is doubtful if the TPP will result in sharply increased imports. The Detroit 3 have always said that they would give up this duty in exchange for reduced foreign barriers, so this sounds like a deal they could endorse. But they can only do this if they engage positively with the administration.
A better approach to the TPP is enhancing the close ties between the Detroit 3 and the Asian auto industry developed in the APEC Automotive Dialogue. This government/industry forum has been dealing with automotive trade issues for more than 10 years, and it has been a success. At least 12 countries have participated -- including Japan, South Korea, India, China, Australia, Canada and the ASEAN countries -- to develop common positions on a wide range of contentious issues. The Automotive Dialogue should be the model for auto-related TPP discussions. This will only happen if the Detroit 3 abandon negativity and embrace a positive, constructive approach to the TPP.